Daily Rate Update: April 27th-May 1st

Sell in May And go away! That’s how May is kicking off today with U.S. stocks considerably lower after Apple and Amazon reported mixed earnings. In addition, the White House is threatening new tariffs on China for the country’s handling of the coronavirus. “Sell in May and go away” is a well-known financial-world adage. It is based on the historical underperformance of some stocks in the “summery” six-month period commencing in May and ending in October, compared to the “wintery” six-month period from November to April. If there was ever a summer to sell and go away, it might be this one – the enormous stimulus and the reopening of our economy may fend off this phenomenon.

Coronavirus update from Johns Hopkins as of this morning: Here in the U.S., there are 1,095,977 cases of the virus with 63,876 total deaths while 155,737 have recovered. There are 3,329,453 cases of the virus reported worldwide, 234,725 deaths while 1,053,040 have recovered from the virus.

The carnage that has taken place in the labor market due shutdown of the economy after the outbreak of the coronavirus. The unemployment rate could hit Great Depression levels this summer. In the past six week, 30 million Americans files for first-time unemployment benefits. A White House official said the jobless rate could hit 20% by June. In 1933, the rate hit 25%. The White House went on to say that the economic numbers between May and July will be as bad as anything ever seen.

The unemployment line is growing. Over 30 million people are now unemployed across the nation in the past six weeks due to the pandemic induced shutdown of the U.S. economy. For the week ended April 25, 3.84 million Americans filed for first-time unemployment benefits, worse than expectations of 3.05 million. The worst of new claims could be in the rear-view mirror and has been declining since the 6.87 million record for the week ended March 28. The four-week moving average, which irons out seasonal; abnormalities, rose to 13.3 million, up 3.7 million.

Mortgage rates fell to record lows this week due in part to the global pandemic outbreak. Freddie Mac reports that the 3-year fixed-rate mortgage fell to 3.23% this week with 0.7 in points and fees. It is the lowest rate since record-keeping began in 1971. Freddie Mac said while many people are benefiting from low mortgage rates, it’s important to remember that not all people are able to take advantage of them given the current pandemic. A year ago the rate was 4.14%.

Consumer spending nosedived in March as the outbreak of the pandemic caused the stay-at-home orders while businesses across the nation shuttered. Personal Spending fell 7.5% in March from February, the sharpest decline since the Commerce Department began keeping records in 1959. The pandemic caused a shutdown of bars, restaurants and retail stores since mid-March while the soaring unemployment lines severely impacted consumer spending or household outlays, which makes up two-thirds of U.S. economic activity. In addition, Personal Incomes fell 2.0%.

Mortgage rates were essentially unchanged in the latest week and remain near historic lows. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage was 3.43% with 0.34 in points for the week ended April 24. The Market Composite Index, a measure of total mortgage loan application volume, fell 3.3%, the Refinance Index fell 7.3% while the Purchase Index rose 11.6%. The ten largest states had increases in purchase activity, which is potentially a sign of the start of an upturn in the pandemic-delayed spring homebuying season, as coronavirus lockdown restrictions slowly ease in various markets,” said the MBA’s Joel Kan.

Breaking news hit the wires this morning revealing positive trial results for the Gilead coronavirus treatment drug remdesivir.
This is an early-stage trial, so a lot more testing has to happen but it is OK to be optimistic because a cure is a game changer to this pandemic and its economic toll. Stocks are sharply higher in response to the Gilead headlines, along with double-digit ad revenue in Google’s quarterly earnings report and ahead of the Fed statement this afternoon. The Dow Jones Industrial Average was up 500 points in early trading.

Falling oil prices have pushed the cost of gasoline lower in the past month and could edge lower in the next month. Motor Club AAA reports that the national average prices for a regular gallon of gasoline has fallen to $1.76 today, which is four cents less than last week, 28 cents cheaper than last month and $1.11 less than a year ago. “AAA forecasts that the national average will continue to decrease into next month, possibly dropping as low as $1.65,” said Jeanette Casselano, AAA spokesperson. “We haven’t seen gas prices that cheap since January 2009.”

The fallout from the coronavirus pandemic continues to severely impact economic activity across the nation while consumer attitudes have plunged. Stay-at-home restrictions, the closing of many businesses along with nearly 27 million people claiming first-time unemployment benefits reflects the sharp contraction in economic activity from COVID-19. The April Consumer Confidence Index fell to 86.9 from 118.8 in March and was the largest monthly decline since 1973 and the lowest level since 2014. Lynn Franco from the Conference Board said, “Consumers’ short-term expectations for the economy and labor market improved, likely prompted by the possibility that stay-at-home restrictions will loosen soon, along with a re-opening of the economy.”

Just before the coronavirus hit here in the U.S. home price gains were beginning to percolate in February due to low rates, tight supplies and strong demand. The Case-Shiller 20-City Index rose by 3.5% annually in February from 3.1% in January and was up 0.4% monthly from January to February. National Home Price NSA Index, which covers all nine U.S. census divisions, rose 4.2% annually, up from 3.9% in the previous month, 0.5% monthly. Craig J. Lazzara said, “As much of the U.S. economy was shuttered in March, next month’s data may begin to reflect the impact of these policies on the housing market.”

Freddie Mac and Fannie Mae cleared up one important question on the minds of those in forbearance on mortgages due to the coronavirus pandemic. The question is what happens at the end of the forbearance as the missed payments will have to be paid back in one way or another. The CARES Act puts forth that a mortgage backed by the government or by the GSEs, that is in forbearance, does not have to pay back the missed payments in one lump sum. There are essentially three options that borrowers can enter into such as a repayment plan, payment deferral or modification, or modification of the loan.

There is some cautious optimism in the air on reports that Italy, France, the U.K. as well as several states here in the U.S. will begin to ease lock down restrictions and open parts of their economy. Mortgage Bonds and Treasury prices are starting the week lower as Stocks attempt to push higher. The Dow Jones Industrial Average is up 262 points and is up 32% from the low of 18,213 hit on March 23.

It’s Fed week and come Wednesday, we will hear what the Fed has to say about the economy, outlook and confirmation that will take whatever means necessary to help stimulate the economy upon reopening. The central bank punch bowls are being cracked open – last night Japan announced unlimited Bond buying to help stimulate the economy. Japan has been on an unlimited QE for the last three decades, yet, they still have no inflation and tepid economic growth.